Nigeria’s sovereign bonds experienced a decline on Monday following a statement from US President Donald Trump, who threatened military action in the country if it failed to protect its Christian population. Trump suggested that the US military could deploy troops to Nigeria or conduct airstrikes to halt the killing of Christians, which he referred to as a significant issue.
The country’s longer-dated bonds were the most affected, with the 2051 issue initially falling by roughly 0.5 cents before partially recovering to trade at just under 92 cents on the dollar. This movement occurred amidst flat trading for most emerging market bonds.
In response to Trump’s threat, the Nigerian Federal Government expressed its willingness to accept US assistance in combating Islamist insurgents, provided that its territorial integrity is respected. Nigeria has been struggling with attacks from Islamist insurgencies in the Northeast, bandits in the Northwest, and clashes between farmers and herdsmen in the Middle Belt, resulting in the deaths of approximately 3,570 civilians last year, according to the Armed Conflict Location and Event Data Project.
Despite the threat, investors remained largely unfazed. The Head of Africa Strategy at Standard Chartered in London noted that the dip in Eurobond prices seemed contained and had partially reversed. Foreign investors have been drawn to Nigeria this year due to economic reforms implemented by President Bola Tinubu, including the removal of fuel subsidies and the devaluation of the naira currency.
Nigeria’s equities have seen a significant increase of around 65% in total US dollar return terms year-to-date, making them the best performer in African emerging markets behind Ghana. The country’s bond spreads have also narrowed to the point where it is considering issuing billions in bonds this year.
According to Aberdeen fund manager Kevin Daly, the situation is unlikely to become a major concern for the market, as Nigerian officials are expected to discuss the matter with their US counterparts. The areas of concern are currently far from the oil-producing southern part of the country and the commercial capital, Lagos.
Analysts believe that potential US military strikes in the northern or central-north regions of Nigeria would have minimal economic impact due to the limited commercial activity and existing disruption in these regions. As a result, Trump’s threats are seen as a temporary distraction from the investment case, which should focus on economic policy reforms and good valuations. The situation will likely be monitored closely by investors and policymakers in the coming days.